Brokers' take: Maybank KE upgrades Genting to 'buy' on Yokohama IR hopes

MAYBANK Kim Eng (Maybank KE) has upgraded its call on Genting Singapore to "buy" from "hold" while raising its target price to S$1.16 from S$0.86 previously.

This comes on the assumption that Genting's joint venture (JV) with Sega Sammy Holdings will win the Yokohama integrated resort (IR) request for proposal (RFP) process.

Maybank KE estimates that the anticipated win will add S$1.8 billion or S$0.30 per share to Genting's earnings, should the group own 50 per cent of the JV.

To recap, Japanese media on Monday announced that only two groups had qualified for Yokohama's IR RFP process, namely the Genting-Sega Sammy JV and Melco Resorts & Entertainment.

Analyst Yin Shao Yang in a Wednesday report called the JV "unexpected". Yokohama's IR bid through a request for concept in 2019 had seven major gaming operators participating, including Genting.

Assuming that the Yokohama IR will be 100 per cent equity financed, he estimates the project to generate US$2.7 billion in net profit in its first full year of operations.

Mr Yin also highlighted that Genting had named Kajima Corporation, its main contractor who constructed Resorts World Sentosa (RWS) in Singapore, as its contractor for the potential deal.

Yokohama is expected to announce the winner of its IR RFP process sometime in the third quarter this year.

"On another note, Sega Sammy stated that it would prefer a minority stake in any JV for a Yokohama IR bid. Thus, we gather that Genting may own at least 50 per cent of the Genting-Sega Sammy JV," said the analyst.

Referring to the upcoming Yokohama mayoral elections to be held on Aug 29 this year, the analyst deems Genting a "tactical buy" even in the event that an anti-IR mayor is elected, as no value from a Yokohama IR has been imputed into its share price.

"Genting's RWS operates, in our opinion, in the most highly regulated casino jurisdiction in the world. In our view, Genting has strong ESG (environmental, social and corporate governance) credentials which stand out among its regional peers, especially the Macanese ones," commented Mr Yin.

"Countries seeking to liberalise their casino industries like Japan are looking to Singapore's highly-regulated casino industry and the strong ESG credentials it engenders for guidance. In our view, this could give Genting an advantage in bidding for a Japanese casino licence," he added.

KGI Research has a "buy" call on the stock with a S$0.95 target price, while recommending entry at S$0.84 and a stop-loss point at S$0.78.

In its report on Wednesday, the research house noted that shares of Genting were recently sold off due to rising Covid-19 cases in Singapore and subsequent tightening measures. It deems this a buying opportunity as Genting remains a good reopening play, in KGI's view. The group also stands "a good chance" of securing the Yokohama IR project, it said.

"Analysts' expectations aren't very high - mainly as we think that the markets have not fully accounted for the Yokohama IRs. There are eight 'buys', 11 'holds', 1 'sell' and a 12-month average target price of S$0.95 (implied 11 per cent upside)," noted the research house.

Shares of Genting Singapore closed 1 Singapore cent or 1.2 per cent higher at 86.5 cents on Wednesday evening.